- Chile has demonstrated for years its entrepreneurial spirit, with Chilean companies competing successfully in various industries (air transportation, financial services, and retail, just to mention a few) and a stable economy.
- This year two Chilean start-ups were the winners of the BBVA Open Talent in Latin America: Destacame.cl, aiming to financial inclusion by creating a credit scoring based on utility payments; and Bitnexo which enables fast, easy and low cost transfers between Asia and Latin America, using Bitcoin.
- JH Life BriefCase: one central place to store, organize, and manage illustrations and client related information.
- JH Marketplace: manage sales and underwriting materials, increasing speed of distribution, decreasing cost of delivery, maintaining version control for compliance.
- Understand your customer – who/how/when/why he buys from you. Customer needs to be in the center of the design. We have moved to an environment where “the user” is beyond the insurer (and IT department) control.
- Don’t focus just on the mobility concept, most likely it will require an omni-channel strategy to deliver what they expect. Consistency and integration across channels is of vital importance.
- Work on your processes. Simplify and adapt to new channels and customers’ expectations.
- Invest in a core system that will be able to accommodate these processes, integration points and basically that will provide you with the flexibility to evolve in time with agility.
- If you insist and only want to focus on mobility, assuming everything else in your company works fantastically well, then portals/websites should be part of your mobile strategy besides apps. Use responsive design so it is easier to deliver content on any device (and size of screen).
In our recent work in Latin America, it is clear that in the process of selecting core systems for countries such as Argentina, Brazil, Chile, Colombia, Mexico and Peru, Insurers have been more focused on delivery and support capabilities than in the product.
All vendors claim quick time to market, low TCO, quick ROI, strong product configuration capabilities and more. And when dealing with the top vendors, there is little material difference in features and functionality. Although functional requirements account for most of the items in a RFP the weight of non-functional requirements including delivery and support capabilities has matched and even surpassed the first. This is an approach that we have been advocating in other regions.
Functionality is now an arms race. Insurers, even in emerging regions like Latin America, must invest more in evaluating service and delivery capabilities.
With a plethora of new vendors in the region offering solid solutions proven elsewhere in the world, regional insurer have three important questions that vendors need to address:
1 . “Will the vendor have the capabilities to deliver and support the product in this region? “
2. “What will I need to change (people, process) in order to take advantage of these new highly configurable systems that promise to put everything, well almost everything, in hands of the business users?”
3. “How do I really validate that the product will support our lines of business, the products we sell and the channels and processes we want to have in place to better serve our distribution channels and customers?”
In response to these questions, there are several interesting points to make.
It is clear that vendors in the region bring a wide range of different business models. Insurers in most Latin American countries have been used for decades to have local/regional support from vendors which acts as a high entry barrier for new participants. While some of the new players have decided to work through system integrators or implementation partners, they still need to demonstrate how successful those relationships can be to deliver in the short term and to supersede in the long term. Insurers are looking for credible relationships (between vendors and partners) and processes in place in advance for knowledge transfer. Domain expertise, sufficient trained staff and delivery capabilities in similar projects are key aspects they will consider when evaluating the local/regional partner. Finally, how involved is the vendor going to be in the implementation process is also under consideration. Vendors who are amongst the first to prove some track record in the region will be the vendors who succeed in the future.
When it comes to validating the product against the insurer business model, Celent points insurers to the process of the RFP. There are smart ways of validating and engaging with vendors early in the review process to strike a balance between what the solution is capable of and the organizations willingness to change its business model. This new approach focuses more on system review in early stages of the process and making stakeholders and users engage in the quest of understanding what is possible and the transformation required within the organization since start.
This focus on service delivery and business transformation over functional requirements is the new reality in Latin America and one that Celent will continue to support.
In my previous post: “Latin American Markets Are Hot for a Reason”, we discussed about the significant growth of this region compared to industrialized countries and how GDP of emerging markets was expected to match their industrialize counterparts 10 years from now. For those joining just now, growth expected for the Latin American region in 2011 is 4.5%; the world rate will be 3.2%; and in industrialized countries, growth will only be 1.4%. The trend since 2002 has been more growth from emerging markets than industrialized countries and we expect this to continue this way for the next 10 years.
Has the Insurance Industry in Latin America gained any benefit from this growth?
Equally to the economic growth trends described before, Life insurance in Latin America has been experiencing an average premium growth rate of 8% for the period 2000-2009 while non-life insurance premiums have grown an average of 6.5% in the same time. North America instead has been very steady in the life insurance market and only in non-life has experienced some growth at an average of almost 2.5%. Europe has not done much better with just over 3% increase in premiums in non-life and almost hitting 3% increase in life insurance in the same period.
Last year, Latin American life insurance market experienced a 12% growth in premiums with Brazil, Chile, Argentina and Peru as main contributors and expecting to maintain double digits growth rates next year although some challenges remain. Also as a consequence of the good economic performance of the region, non-life insurance premiums increased 5.5% and we continue to expect growth driven by investments mainly in infrastructure and energy in the short and medium term.
On the other hand and considering 2010 figures, North America and Western Europe count for 60% of the world market share of life insurance and 72% of non-life, Latin American and Caribbean life insurance market represented only a world market share of 2.2% and non-life 4.0%.
So, evidently the opportunity is not in the current size of the market. Where to find it?
I believe that insurers are seizing opportunities of a market that will continue to grow and that has the potential to drive premium to similar ratios than the ones found in industrialized countries.
Consider for example the insurance penetration ratio (premiums as % of GDP). In 2010 Latin American insurance penetration ratio was 2.7% very low compared to 7.9% for North America; 8.4% for Western Europe or even Asia with 6.2%. Emerging markets have a ratio of 3% and industrialized countries 8.6%. The world in average has a ratio of 6.9%.
As for insurance density (premium per capita) in 2010, Latin America shows a low ratio of 219.1 USD per capita when compared with 3724.4 for North America´s; 2890.3 for Western Europe or even Asia with 281.5. The world in average has a ratio of 627.3.The insurance industry clearly understands the unique opportunities this ratios bring into their business. That is why we have more insurers looking into build or grow capacities in Latin America. What to expect? Looking in the future we should expect a very positive trend overall. Many things have changed in a positive way in the region and those companies taking advantage of it, will be able to produce extraordinary benefits and value for shareholders and stakeholders.
Technology will play a very important role for insurers competing in this market. There is a need to replace legacy systems and continue to incorporate best practices. Rules based underwriting, Straight Through Processing, standardized xml for data interchange, cloud computing, BPO and improved CRM techniques just to mention some. I hope to have some new reports on this subject soon for you, in the mean time I am available for some one-to-one consulting on Latin American issues.
To anyone who is considering doing business in Latin America just have in mind that although the region presents significant and unique perspectives of growth it comes along with some challenges. You should expect some countries to react defensively at the sight of the international crisis. Some protectionism should be also expected along with setbacks for commerce and investment. Companies will need to consider these in their plans and have a management team, processes and technology to overcome them.
Also bear in mind that although Latin America is always seen as a region it has its significant differences between countries not just cultural but social, economic and political as well.
We at Celent can now help you to navigate through the Latin American experience.
Let me tell you this: I love Latin America!
Latin America is often viewed as a travel destination, with good reason. Just consider its amazing beauty, from Antarctica to Mexican Los Cabos. Its history, from the time of the Mayas, Incas, and natives to modern days. It has many locations that provide unique views of history, such as Machu Pichu and Camino del Inca in Peru; Tikal and Antigua in Guatemala; even in thriving Mexico City, where at one corner from “El Zocalo” you can see how civilization evolved with the clash of three cultures. Did I mention tasty wine and food and gorgeous beaches?
But another aspect of Latin America is bringing visitors: the thriving economy. There are some exciting things going on in Latin American business, and insurance is no exception.
In the not-too-distant past, Latin America was an afterthought for many global businesses. This was a rational approach, given the constant economic turmoil, weak democratic governments, and closed economies. But things have changed. Since the early ’80s democracies have become more mature. Economies have opened, and countries have invested in infrastructure. An increasingly skilled labor pool has increased Latin America’s export value.
Consider Brazil, the dominant economy in Latin America. Since 1939, reinsurance in Brazil had been solely the domain of the government, via the Brazilian Institute of Reinsurance (IRB Brazil Re). On January 15, 2007, Complementary Law 126 eliminated the state monopoly. Also, not too many years ago, Brazil had a strict policy toward importing IT, which resulted in most technology being produced locally, both parts and labor. Today in Brazil (or any other Latin American country), you can find most of the new electronic gadgets and technology available in the rest of the world.
In the last few years Brazil and Peru have been awarded an Investment Grade note, attracting a significant inflow of money to their economies.
Brazil and the group of countries from emerging markets known as BRIC (Brazil, Russia, India, and China) have experienced phenomenal growth since 2002. Brazil drives most of the growth experienced by its partners in Mercosur (the economic treaty that groups most of the South American countries). BRIC countries are also important customers for most of the relevant countries in Latin America.
What we are seeing is that Latin America is experiencing more favorable international commerce than the industrialized world, which is experiencing very low growth rates.
Growth expected for the Latin American region in 2011 is 4.5%; the world rate will be 3.2%; and in industrialized countries, growth will only be 1.4%.
BRIC economies expect growth of 4.0%, 4.5%, 7.8%, and 9.0% respectively, helping emerging markets achieve growth of 5.8% by the end of 2011.
When you compare this growth to the 1.4% average in industrialized countries, you start to understand why many companies are looking into Latin America and emerging countries in general as a place to invest, and not just opportunistically.
To understand the impact this will have, we might want look at global share of GDP. Emerging countries had 35% of global share of GDP 10 years ago. Today they have 40%, and 10 years from now they could have 50%, equal to the developed markets.
The increase in economic activity in the region will create more opportunities for insurers because enterprises will need to protect their assets, properties, and employees. Personal wealth growth will create opportunity for insurance products related to wealth management and protection, investment, savings, and capital accumulation.
Of course there is still room for improvement to make the Latin American market even more attractive. Economies, investment policies, and money flows should be more tightly assembled and coordinated with other countries from inside and outside the region. But in general things are moving in the right direction.
At minimum, most insurers and vendors should be thinking about the potential for Latin America as an expansion market.